Observations of an Accidental Tourist: Price Theory in Application

|Peter Boettke|

Since late January I have been traveling almost weekly to present papers at colleges and universities or attend conferences where I am giving a talk.  This non-stop tour of the US will not come to an end until July.  I actually don't think I have ever traveled as much in such a short span of time in my career.

I love meeting with new people and also talking to older friends during these travels, but I do not like traveling in the least bit.  Don't like airports and certainly find all the hassles of traveling and security to be annoying.  But as I am traveling this winter/spring, I have become obsessed with an observation and doing some counting in my head to perform some rough and ready "test" of my hypothesis.

Before I go into my observation, allow me a short detour in time.  One of the most important courses I ever took was not even a class I took for credit.  I sat in on the lectures of Sheila Kirby of Rand, who was teaching Intermediate Microeconomics using Hirschleifer's texts.  She was an outstanding teacher, and for whatever reason she actually would stay after lectures and talk to this student who was not even registered in her class about economics and its power to explain human behavior.  And in addition to the text and lectures, I read two journal articles that had a huge impact on me and the way I thought about market theory and the price system.  The first was R. A. Radford's The Economic Organization of P.O.W. Camp, and the second was Fred Bell's The Pope and the Price of Fish.  The take away -- spontaneous order guided by relative price adjustments and profit and loss accounting.

So now back to my travels.  Most of my flights originate during the week, so I am traveling with businessmen (and business women but for this observation they don't enter the analysis).  Many of these men are making trips for meetings that day, so they are dressed for business as they travel.  The traditional footwear of businessmen in suits is the Oxford wing-tips.  Such shoes, however, require the shoe-laces to be tied.  Since Richard Reid's failed efforts at shoe-bombing, airline security measures have tightened and travelers are now required to take off their shoes before walking through the scanner.  This has raised the price of wearing shoes that have laces.  So I have noticed that businessmen have shifted out of the traditional wing-tip and moved to dress loafers.  My calculations actually have this at 3/4 businessmen are wearing shoes that don't require laces.  This has led me to think a Pope and the Price of Fish type study could be done on shoe wear and changes in TSA requirements after Richard Reid.  I hope an enterprising graduate student will pick this up and see if my observation has any validity --- you know what do I think, what do I know, what can I prove.

If it turns out that my observation is backed up by economic analysis, then I might start thinking about the potential effects of the failed underwear bomber on traveler behavior!

Comments

[Steve Horwitz]

I'll note a corollary to this observation: I now am LESS likely to wear my sneakers when traveling, no matter when/where, and more likely to wear casual loafers of the sort you're talking about Pete. There's a substitution effect going on from both ends of the shoe spectrum.

[Current]

I always wear tied shoes because loafers fall off my feet if I walk far. Most europeans do the same.

I didn't understand how americans *could* wear loafers until recently. An Irish ex-boss of mine moved to Austin in Texas. He told me that the temperature inside and outside is very different. It's hot outside and much cooler inside because of air-conditioning. He told me that this temperature change alters the size of his feet. They expand as he goes outside. So, he can walk in loafers in Texas if it's warm weather.

Americans, is this how loafers work?

I'm now doubtful because I don't see how a person could walk around airports all day in loafers.

[Richard Ebeling]

I think one of the significant implications of all of this is the degree to which the state influences the form and direction of human decision-making in society and the market.

Indeed, what we live in is a world impacted upon by what the French have called "indicative planning." The idea was that the state did not have to directly own or command. Through the taxing and regulatory structure, the political authority could "indirectly" guide investment and industry into those activities that it, the state, considered to be in the "social good."

Nor do these indirect planning techniques have to be connected together by any overarching "plan." Back in 1937, Lionel Robbins, in his "Economic Planning and International Order," emphasized that the interventionist state is a network of decentralized and disconnected plans that often are contradictory and inconsistent with each other precisely because they are made according to the discrete and separate purposes of particular interventionist motives and goals.

How and where we live, how and what we eat, how and where we travel, how and where we produce and consume -- indeed, each and every nook and cranny of our existence is determined and/or influenced by these spider's webs of interventionist tools and techniques.

Participants in the market act and respond in the context of the given "data." And an increasing elements of the "data" has been and continues to be the network of government controls, regulations, prohibitions, inducements.

"The market" operates within and responds to the parameters and incentive structures that the state imposes on the social order. And this, at Pete has observed, can be something as "trivial" as the type of shoes one decides to wear when traveling by airplane.

This is what makes discussing the economic order so difficult, sometimes. Do we live under "capitalism" or "socialism"? Do we decide and act, produce and consume, according to competitive supply and demand, or based upon the paternalistic directives of the state?

Pick up any product that you normally buy in the market place, and follow its journey back up the "stages of production." At each one, the production methods, the work place rules and requirements, the preparation and processing of the inputs that are part of the "value added" components of that step of the production process have been determined and confined within the regulatory restrictions and requirements of the state.

Thus, we have a partial "spontaneous order" of market and social development and evolution whose "path-dependency" in terms of its form and structure has been "nudged" into various "avenues" and "by-ways" by the political decision-making process.

And this, of course, explains why influencing the political process through special interest politicking has so much importance and such a powerful payoff.

So, do we have "markets" or "planning"? The modern interventionist state means that we have both, and the remaining competitive forces of the former operate within the context of the restraining regulations and rules and incentives of the latter.

Richard Ebeling

[amv]

Current,

I'm European, too, and I prefer tied shoes but also wear loafers. You may try a size actually fitting your feets ;). Try Italian or British shoes. Here, price signals quality. Since I share the 'girlish' passion for shoes, no government can impose enough costs on me so that I choose against my fashion preferences. Peter's observation may indicate that American businessmen are more willing to substitute their most preferred look by comfort than I am ;).

[Current]

The problem I've had is that even if the size is right then you have to stretch the shoes every time you put them on. Then, when you walk around in the they get stretched more, so they get bigger.

[Current]

Going back to the main point...

There are all kinds of little demonstrators of this. For example, in Britain Value-Added-Tax isn't applied to "necessities", only to "luxuries". The list of necessities was drawn up in 1973, and reflects the conditions of that time. Cakes and baking products are in the necessities category, while biscuits are considered luxuries. So, biscuits get taxed at 17.5% but cakes don't.

The result of this has been to encourage biscuit-like cakes. The most famous of these are Jaffa cakes:
http://en.wikipedia.org/wiki/Jaffa_Cakes
In a protracted legal case the UK Customs & Excise (VAT collectors) tried to claim Jaffa cakes were biscuits and should be taxed as such. Customs & Excise lost.

There are now many cake like biscuits such as mini-rolls and cadbury's cake bars. Even if the law were to be changed I think these would stay around - the path-dependency Richard is talking about.

It's interesting too how subsitution and network effects make their appearances. Much of the technology used in modern wireless networks has come from military communications and radar. Many of the people involved have too. A major reason why the telecoms revolution began in the 90s was because the end of the cold-war meant that many engineers lost jobs in military research and were soaked up by civilian businesses. Electronics still depends on components and capital equipment that were made cheap by excessive government military spending.

[Jasper]

"My calculations actually have this at 3/4 businessmen are wearing shoes that don't require laces."

Versus what proportion historically?

I hate to pour cold water on your economic musings but I think it's a broader fashion trend more so than anything relating to travel. I expect that the portion of loafers around my office is much higher than 3/4 for business casual and about 1/2-3/4 for business formal attire.

[Peter Boettke]

Jasper,

Can you date that to prior to the 2001? Or TSA new restrictions in 2003? My hypothesis is no, that loafer had in fact been faded, but that they have come roaring back because of the "relative price effect" I mention. This is why I sent out an invitation to an enterprising graduate student to collect the data and work with me to set up the appropriate test, etc. Right now, we are just at a "what do I think" stage, need data and analysis to move to the "what do I know" let alone "What I can prove" stages.

[Barkley Rosser]

As someone who travels a lot, I certainly have given up wearing shoes that require tying laces since this "take off your shoes" stuff went into place.

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